Chevy Volt Price May Come Down, But How Much?

According to a report today, a GM Executive is saying that the upcoming plug-in hybrid Chevy Volt's price tag might not be as high as originally expected. Back when it was first announced, GM said that it would run a cool $40,000. I said that, although the vehicle's 230 mile-per-gallon engine will give anyone without one green envy, that high cost prices out most Americans. But if the price does come down, that could capture a great deal more consumer demand -- obviously great news for GM. But how low would the price have to come down to begin to make economic sense to American consumers?

Back when I first wrote about the Volt, I did a comparison between the Chevy Volt and the Toyota Corolla. I calculated how many miles you'd have to drive to take advantage of the Volt's better gas mileage in order to justify its high price. I said that you'd have to drive 229,000 miles to break even. That led me to conclude that virtually no one will be driving a Volt for economic reasons.

But what about those who are willing to spend a little more on green technology -- maybe we should compare it to the Toyota Prius. Let's look at three price scenarios for the Volt and determine how many miles you'd have to drive during the life of your auto loan in order to save money by purchasing the Volt instead of a Prius.

First a few assumptions. I'm assuming a 60-month auto loan, where the borrower puts down 10% in either scenario and pays an interest rate of 7%. According to the Toyota website, the Prius starts at $22,400, which results in a cost of just under $400 per month under the assumptions explained. I'm using the current average price for gas of $2.665. I'm also ignoring plug-in charging costs for the Volt.

Volt Cost Scenario 1: $40,000 (base case)

Here, the Volt owner would have to pay $713 per month on the auto loan. So that makes the Volt's payment around $314 more than the Prius'. It needs to make up that money in gas savings.

Under this scenario, the Volt owner would need to drive more than 7,750 miles per month (93,000 per year), before it becomes cost effective.

Volt Cost Scenario 2: $30,000

Here, the Volt owner would have to pay $535 per month on the auto loan. So that makes the Volt's payment around $135 more than the Prius'. It needs to make up that money in gas savings.

Under this scenario, the Volt owner would need to drive more than 3,350 miles per month (40,200 per year), before it becomes cost effective.

Volt Cost Scenario 3: $25,000

Here, the Volt owner would have to pay $446 per month on the auto loan. So that makes the Volt's payment around $46 more than the Prius'. It needs to make up that money in gas savings.

Under this scenario, the Volt owner would need to drive more than 1,150 miles per month (13,800 per year), before it becomes cost effective.

I think this shows that the Volt's price will have to come way down in order for most drivers to consider it a good deal based on the better gas mileage for the life of the loan. Obviously, if the owner keeps the car well beyond the life of the loan, then the equation improves. It also improves if gas prices skyrocket. But for the Volt to look like a good deal during the life of the loan with gas prices stable, the average driver won't want its price to much exceed $25,000. That would be a 37.5% price drop from the originally reported price. I'd be pretty surprised if the final price turned out to be that much lower. So I suspect that, even if today's report is right and the price drops, the average consumer still won't find the car that great of a deal from a financial standpoint since the price isn't likely to decline that drastically.

Of course, I don't mean to say that the any price decline won't be welcome from consumers. Surely more people will buy a $35,000 Volt than a $40,000 Volt. But most of those buyers will still be wealthier Americans who care more about the green impact than the dent it makes in their wallets.